Small firms can’t rely on banks to lend them money they need to grow, warns CBI
By Becky Barrow
Last updated at 1:02 AM on 15th February 2012
John Cridland, the Director General of the Confederation of British Industry (CBI), claims small businesses can’t rely on banks for loans
Cash-strapped small firms cannot rely on banks to provide them with the money they urgently need to grow, Britain’s biggest business lobby group will warn today.
In an urgent appeal, the CBI will speak of its fears that other countries will ‘steal a march’ on the UK if the problem is not solved.
John Cridland, the director general of the lobby group, will say that small and medium-sized companies must be given alternatives to banks when they need to raise money.
‘For too long, the UK’s small and medium-sized firms have relied heavily on banks for most of their credit,’ Mr Cridland said.
‘If we do not act quickly to increase the range of available finance, other countries will steal a march on the UK.’
One of the CBI’s most radical suggestions is for medium-sized firms to be encouraged to issue bonds as a way of raising funds, rather than by taking out a bank loan or an overdraft.
These bonds could be packaged up and sold to individual investors, who could use their annual tax-free ISA allowance of £10,680 to buy them. It also wants small firms to be given easy access to independent financial advisers, who could guide them through the financial maze they currently face.
The CBI said many small firms lack the financial expertise and ‘struggle to present themselves as a viable lending proposition through full and detailed business plans’.
The hard-hitting report comes days after official figures revealed the Government’s attempt to get banks to lend to small firms failed to meets its target.
Overall, the gross lending target under Project Merlin was £76billion, but the five big banks managed to hand out only £74.9billion, a shortfall of £1.1billion.
Four of the banks – Lloyds, HSBC, Barclays and Santander – said they either met or exceeded their targets, raising suspicions that the fifth bank, Royal Bank of Scotland, did not.
Labour slammed the Project Merlin targets as ‘not worth the paper they were written on’.
The CBI’s report is published in response to a Government taskforce, chaired by Tim Breedon, chief executive of the insurer Legal and General.
It is investigating the vital subject of ‘non-bank lending’.
The taskforce is expected to make its recommendations before next month’s Budget.
A separate report, published yesterday, found one in six micro-businesses – firms which employ fewer than ten people – are worried they may have to close by the end of the year.
More than a third said it had been ‘harder to fund their business’ over the past 12 months, according to the report from Professor Francis Greene of Warwick Business School.
The Mail launched its Make the Banks Lend campaign 18 months ago to highlight the desperate plight of many small firms.